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Answer the following questions about welfare:

Is there something you ever purchased that you would have been willing to pay more for than the listed price? What was it?

a) What was the difference between the amount you were willing to pay and the actual price you paid?

b) Why was there such a discrepancy?

Answer the following questions about taxes & subsidies:

1) Give an example of something you purchase that has a special tax placed on it. For example, cigarettes have a special tax placed on them.

a) How high would the price have to go (due to a tax increase) in order for you to no longer purchase it?

2) Give an example of something you purchase that is subsidized. For example, cotton is subsidized.

a) Do you think you would still purchase this product or service even if it wasn't subsidized (because it would be more expensive)?

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Joshua Stredder
Joshua StredderLv10
29 Sep 2019

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Related questions

Marginal Benefit. List and explain at least one example where you actually have used or will use the marginal principle in your life (personal or professional). Here is an example of how I used this principle. I considered pursuing my doctorate degree. Having a doctorate would increase my salary here at Ohlone College. However, obtaining the doctorate has costs associated with it. When I looked at the marginal cost of getting one more degree with the marginal benefit of one more degree, I calculated that the marginal benefit was higher than the marginal cost, so I chose to go on for my doctorate.

NOTE: Do not use the example of pursuing a college degree, since I just covered that one. Come up with a different example.

IMPORTANT: The marginal principle applies to purchasing MORE of something you already have. In my example, I already have two college degrees. The decision is about whether to obtain another degree. Do not give an example of deciding whether or not to buy something you do not have. For example, deciding to buy a car if you do not already have one is not an example of marginal cost. That is an example of opportunity cost.

Economics is nothing more than the study of scarcity and choice. It's called the Economizing Problem.

Economics is also the study of human action---why people make the choices they do.

We have finite (limited) resources and infinite (unlimited) demand for goods and services. We must, therefore, use rational decisions as to how to allocate these resources so that we can produce the goods and services that satisfy as many needs and wants as possible.

Needs are those things that make life possible---food, clothing, shelter, etc. Wants are the things that make life easier---glass in windows, carpet on the floor, a refrigerator to keep your beer cold, etc.

The resources we are trying to use wisely are not confined to money. We are talking about talent, ability, drive, ambition, etc. We can't all be brain surgeons. Nor would most of us want to be. We have different needs and wants that drive our ambitions. I have 5 grandchildren. The oldest two are twins---a boy and a girl. My granddaughter graduated from Idaho University with a bachelor's and a master's degree in accounting in 5 years. She passed the CPA exam on the first try. She now lives in Panama and works for BMW. She speaks, reads, and writes 4 languages, including English. Her brother finally graduated from the University of Arkansas in May 2016 after 8 years! Why did it happen this way?? They were raised the same way by the same parents. Why was my granddaughter drove to succeed and my grandson so listless?

Then there is subjective valuation and opportunity cost. Opportunity cost is nothing more than what you have to give up to do something else. Some of you might have to roll out of the bar or the party a little before you wanted to leave just to be able to attend my class. You might also have to give up some precious sleep. In any event, you had to give up something to attend my class. That's the opportunity cost. Remember, everything you do has a price (opportunity cost) that must be paid according to Harry Browne who wrote, How I Found Freedom in an Unfree World.) To do one thing you must give up the opportunity to do something else.

When people decide to buy a product or service they must decide if it will satisfy a need or want at a price they are willing to pay. The number one reason that people buy the products or services they do is called Personal Tastes or Preferences (Subjective valuation). Everyone has a different price they are willing to pay for the same product or service. Something is only worth what someone is willing to pay for it. That's a subjective valuation. Each of us has a different intensity of demand for the same products. Things you want I may not care for at all, and the opposite may also be true. This is why there is such a variety of goods and services offered on the market.

Subjective valuation is also fluid. As your income goes either up or down it changes your valuation of products and services. Have you ever wanted something so bad you would do almost anything to get it---an i phone or I pad?---but once you get the money you think, "do I really want this?' and you don't buy it. This is common. If it were not for a subjective valuation we would all be wearing the same style and color clothes and living in similar houses, etc. Wouldn't that be a wonderful world! I'd find the tallest building in downtown Orlando and see if I could fly! It is not the similarity in people that interests me. It's the differences. It's my desire not to be like everyone else that has driven my life. Don't strive to be someone else. Strive to find and be yourself. God save me from a terminal case of conventional wisdom!

There are 5 embedded questions.

Give me an example of subjective valuation.

When family members were cleaning out my Great Aunt's house, they found this receipt for a radio-phonograph (with an LP player, which was brand new at the time). Using the tools developed in Chapter 16, I found that $223 in 1953 would equate to $1,960 in 2015. A modern system with speakers, AM/FM radio, CD, and an input for your iThing will run around $500 for one of good€ quality and $75 for something more like a boombox.

Question:

Think of a product or service that you currently enjoy. You should pick something simpler than my example, where there were too many price/quality variations. The title example (a movie ticket) is more comparable across time (but you can't pick that one).

(1) Ask an elder€ (parent, grandparent, aunt, etc) about the cost of that item when they were your age. (They can approximate, although they also need to give you a particular year.)

(2) Did the same product even exist? What is the closest substitute (as I had to, with the CD instead of a phonograph and an iThing input instead of an LP player)?

(3) Use the CPI calculator (at www.bls.gov/data/inflation_calculator.htm) to calculate the price in current dollars. Was the item more expensive or less expensive when your elder was your age?

Respond to one of your fellow student's examples. In your response, state the biases that might make their comparison seem off€.

For example, in the case of a movie ticket. . .

(1) There is substitution bias: Many people have improved “home theater systems” these days, whereas home entertainment back then meant card or board games. As the cost of movie tickets has risen, people have invested more money in home theater systems, instead of going out to the movies.

(2) There is also quality bias: Movie theaters have better sound and better film quality (even 3D) than what was available years ago. They even have cushier chairs that lean back farther.

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